Investors with an interest in Utility - Electric Power stocks have likely encountered both FirstEnergy (FE - Free Report) and CMS Energy (CMS - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
FirstEnergy and CMS Energy are both sporting a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
FE currently has a forward P/E ratio of 15.14, while CMS has a forward P/E of 22.37. We also note that FE has a PEG ratio of 2.52. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. CMS currently has a PEG ratio of 3.62.
Another notable valuation metric for FE is its P/B ratio of 2.84. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, CMS has a P/B of 3.08.
Based on these metrics and many more, FE holds a Value grade of B, while CMS has a Value grade of C.
Both FE and CMS are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that FE is the superior value option right now.